State Senate measure limiting school bonds moves ahead

Despite heavy lobbying by public schools, a California Senate committee approved a bill Wednesday that will limit districts' ability to have future generations pay for classrooms built today.

The bill targeting so-called capital appreciation bonds goes to the Senate floor for final approval.

The schools succeeded, however, in getting get the Senate governance and finance committee to add amendments that will substantially add to taxpayer costs compared with the original bill's limits.

Under the amended bill, schools could no longer issue capital appreciation bonds that delay both principal and interest payments for longer than 25 years.

Currently, schools are allowed to delay payments for up to 40 years, which has resulted in many districts issuing bonds so expensive that taxpayers will pay 10 to 20 times the amount borrowed. These delayed-payment bonds are costly because interest must be paid on the unpaid interest.

In response to lobbying by schools,the committee agreed that districts could continue to issue another type of 40-year debt. Unlike capital appreciation bonds, that debt requires annual interest payments. That provision would end in 2019 when such debt would be limited to a 30-year term.

At Wednesday's hearing, Paul Jessup, deputy superintendant at Riverside County's Office of Education, argued that the bill would hurt poor districts. Those schools need the flexibility to delay debt payments, he said, so they can build schools today. "This is a fundamental equity issue," he said.

But state Treasurer Bill Lockyer testified that Jessup's argument didn't make sense.

"The logic defies me that there is some wisdom in saying that poor people ought to be burdened with more debt in order to finance facilities," Lockyer said. "I don't get that."

The amended bill, known as AB182, allows schools to issue bonds at interest rates of up to 12 percent. Repayments on capital appreciation bonds could be no more than four times the amount borrowed. Compare that with a typical 30-year mortgage, which requires payments of about two times the original loan.

Also on Wednesday, the committee decided to hold a related bill that would prevent schools from using public money to hire political consultants to get bond measures passed.

Assemblyman Don Wagner, R-Irvine, proposed the second bill after a Register story detailed how Placentia-Yorba Linda hired George K. Baum & Co., an investment bank, and its political staff to help get a $200 million bond measure passed in 2008. The district later paid the bank about $2 million in fees to underwrite the bonds.

Dozens of other schools have similarly hired financial firms' political consultants.

The committee's chairwoman, Lois Wolk, said her staff would work with Wagner to amend the bill to address concerns raised by opponents, who include schools and the California Public Securities Association. That group's members include Baum and other bond firms.